17-11-2012, 12:38 PM
GENERAL INSURANCE IN INDIA
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What is insurance?
Definition
Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance.
The party bearing the risk is known as the 'insurer' or 'assurer' and the party whose risk is covered is known as the 'insured' or 'assured'.
Meaning
Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company.
A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool.
Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type.
Example Say 1000 motor cars valued @ 300000/- are observed over a period of five years. On an average say per year two are total loss by accident. Then the total annual loss would be Rs.600000. If the loss is to shared by all the thousand owners then they have to contribute Rs.600/-The loss experience will be established by taking the past experience, geographical area in which the vehicles are used and density of traffic.
Need for Insurance
All assets have some economic value attached to them. No person can deny that there is also a possibility that these assets may get damaged/destroyed or become non-operational due to risks like breakdowns, fire, floods, earthquake etc. Different assets are exposed to different types of risks like a car has a risk of theft or meeting an accident, a house is exposed to risk of catching fire, a human is exposed to risk of death/accident. Insurance is needed because of following reasons:
Social Security Tool
Insurance acts as an important tool providing a sense of security to the society on a whole. It is the right of every human-being to have basic amenities like food, clothing, housing, medical care, standard of living necessary for his personal and family's well being, and right to security in case of unemployment, disability, sickness or any other circumstances out of his control.
Uncertainty
The basic need of insurance arises as risks are uncertain and unpredictable in nature. Getting insurance for an asset does not mean that the asset is protected against risks or its exposure to risk is reduced, but it actually implies that in case the asset suffers any loss in value due to such risk, the insurance company bears the loss and compensates the insured by making payment to him.
Economic Development
The premium paid by people to the insurance companies is a part of their savings. Insurance, thus, acts as a useful instrument in promoting savings and investments, particularly within the lower-income and middle-income families. These savings are ultimately used as investments fuelling economic growth.
Difference between Life Insurance and General Insurance
Life Insurance
Insurance against risk of loss to one's life is covered under Life Insurance. Life insurance is also known as long term insurance or life assurance. It includes Whole Life Assurance, Endowment Assurance, Assurances for Children, Term Assurance, Money Back Policy etc.
General Insurance
Insurance against risk of loss to assets like car, house, accident etc. is covered under General or Non-life Insurance. General insurance includes fire insurance, marine insurance, motor insurance, theft insurance, health insurance, personal accident insurance etc.
Basic Difference between Life Insurance and General Insurance
Life insurance includes plans which are directly related with the person's life. On the other hand, general insurance deals with plans which are not related to the life of the person. General insurance plans seek to provide protection against loss to a person's assets or health and not to his/her life.
Motor Insurance:
Motor insurance( also known as auto insurance, vehicle insurance, car insurance)is insurance purchased for cars, trucks and other vehicles.It is primarily used to provide protection against the losses incurred as a result of traffic accident and liability that can be incurred during the accident.
Fire Insurance:
Fire insurance is form of property insurance which protects people from the costs incurred by fire. When a structure is covered by fire insurance, the insurance policy will pay out in the event when the structure is damaged or destroyed by fire.
Health Insurance:
Health insurance, like other forms of insurance, is a form of collectivism by means of which people collectively pool their risk, in this case the risk of incurring medical expenditure.
Marine Insurance:
Marine insurance covers a loss or damage of ships, cargos, terminals and any transport or cargo by which property is transferred, acquired or held between the points of origin and final destination.